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Curious Cat Kivans

Investing and Economics Blog

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 5.7% in the fourth quarter of 2009, (that is, from the third quarter to the fourth quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 2.2%.

Real GDP decreased 2.4% in 2009 (that is, from the 2008 annual level to the 2009 annual level), in contrast to an increase of 0.4% in 2008. The price index for gross domestic purchases increased 0.1% in 2009, compared with an increase of 3.2% in 2008.

The Bureau emphasized that the fourth-quarter advance estimate released today is based on source data that are incomplete or subject to further revision. The “second” estimate for the fourth quarter, based on more complete data, will be released on
February 26, 2010.

The increase in real GDP in the fourth quarter primarily reflected positive contributions from private inventory investment, exports, and personal consumption expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, increased.

The change in real private inventories added 3.39 percentage points to the fourth-quarter change in real GDP after adding 0.69 percentage point to the third-quarter change. Private businesses decreased inventories $33.5 billion in the fourth quarter, following decreases of $139.2 billion in the third quarter and $160.2 billion in the second. Real final sales of domestic product — GDP less change in private inventories — increased 2.2% in the fourth quarter, compared with an increase of 1.5% in the third.Read more

From 1980–2005, firms less than five years old accounted for all net job growth in the United States.

More than half of the companies on the 2009 Fortune 500 list were launched during a recession or bear market, along with nearly half of the firms on the 2008 Inc. list of America’s fastest-growing companies.

Contrary to popularly held assumptions, the highest rate of entrepreneurial activity belongs to the 55–64 age group over the past decade. The 20–34 age bracket has the lowest.

Only 16 percent of the fastest-growing and most successful companies in the United States had venture investors.

More than a quarter of technology and engineering companies started in the United States from 1995 to 2005 had at least one key founder who was foreign-born.

Foreign nationals residing in the United States were named as inventors or co-inventors in 25.6 percent of international patent applications filed in the U.S. in 2006.

My reason for giving this advice: These companies, in my judgment, have some of the worst balance sheets in the U.S. The first five companies mentioned above have negative net worth; that is, their liabilities exceed their assets. Among the 727 U.S. companies with a stock-market value of $3 billion or more, only 17 have that unfortunate distinction.

The next five companies have positive net worth (stockholders’ equity) but their total debt is at least five times equity, a trait shared by 26 of those 727 companies.
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Here’s my take on 10 debt-laden companies to avoid.

Cablevision, based in Bethpage, New York, has posted annual losses in four of the past seven years. Like all cable operators, it faces potential competition from satellite and wireless technologies.

Moody’s, a bond rating and financial information firm based in New York, has come under heavy criticism for issuing bond ratings that were too uncritical. I think profits could be hurt by lawsuits alleging biased ratings. Rivals such as Standard & Poor’s, a unit of McGraw-Hill Cos., face similar issues but have stronger balance sheets. Warren Buffett’s Berkshire Hathaway Inc. has been cutting its stake in Moody’s during the past six months…

Investing in individual stocks is not necessary for a good financial plan but can provide great benefits. However, it does require more vigilance as you must keep an closer eye on your investments and make changes as necessary. Many chose not to include individual stocks in their portfolio, using mutual funds instead. That is fine, I do like to include stocks though. My 12 stocks for 10 years portfolio continue to do well (beating the S&P 500 by 4.8% annually after a 2% annual simulated expense fee reduction). One stock I particularly like right now is Google.

3 Nobel prize winning economists, Robert C. Merton, Robert Solow and Paul Samuelson, took questions about the impending retirement savings crisis from PBS NewsHour correspondent Paul Solman in October 2008. Paul Solman asked them about their personal portfolios in the clip shown above.

Robert Merton tells his portfolio portfolio is in a Global Index Fund, Treasury Inflation-Protected Securities, and one hedge fund. He said he had been invested in a TIAA commercial real estate fund until recently, but sold in early 2008 when he worried commercial real estate prices had increased too far. He also sold out his Municipal bond holdings.

Robert Solow says he has no idea of his portfolio.

Paul Samuelson declined to say. He did offer that timing is not something investors can successfully do. He stated that timing the selling of assets was not as difficult as timing when to get back in. And that markets move very quickly so you can miss out on big gains. 2009 provided a great example of this. Many people sold stocks in late 2008 and early 2009. And most did not get back in. In 2009 the S&P 500 was up 26%.

AT&T and Verizon have each reduced the price on their unlimited voice plans. The plans have dropped from $99.99 to $69.99 per month for individuals.
…If I am an existing customer paying a higher fee for my voice service, can I switch to the all-you-can-talk plan without being penalized?
Yes, AT&T and Verizon Wireless representatives say all you have to do is call a customer service agent to change your plan. You will not be charged any kind of fee for switching. And you will not extend your existing contract by switching to the lower cost plan.
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Each of these plans will cost about $120 a month. Unlimited texting and voice is about $90 a month. And the data service is an additional $30 a month. The price of unlimited voice, text, and data from these carriers previously was about $150, because the unlimited voice service was $30 more expensive.

Are the data plans really unlimited or is there a 5 gigabyte limit?
AT&T and Verizon Wireless say their data plans are unlimited for all phone customers. The 5GB limit only applies to customers using their 3G broadband service for laptops.

Do either AT&T or Verizon Wireless allow tethering phones to laptops for Internet service? How much does this cost?
AT&T and Verizon Wireless each allow attaching phones to a laptop to get 3G wireless service. Verizon allows tethering on most devices, but not all. For smartphone customers with a voice and data plan, the tethering plan costs an additional $30 per month. For customers wanting to connect their laptops to a feature phone, the tethering plan will cost about $49.99 if you use the new plans. In either scenario, customers are subject to the 5GB limit for tethering usage with 5 cents per MB for overage.
…Sprint’s Simply Everything plan costs $99.99 and includes unlimited voice, texting, and data. This is still $20 cheaper than a comparable unlimited plan for an AT&T smartphone or any Verizon phone
…T-Mobile USA offers an unlimited voice, text, and data plan for $79.99 a month, which is $40 less than the new equivalent plans from AT&T for smartphone devices and Verizon Wireless

Gross domestic product rose 10.7 percent from the same period a year ago, more than the median forecast of 10.5 percent in a Bloomberg News survey, a statistics bureau report showed in Beijing today. For the full year, GDP gained 8.7 percent, beating Premier Wen Jiabao’s 8 percent target.

The report may stoke speculation the central bank will start raising its benchmark interest rate and tighten restrictions on the nation’s lenders. Minutes after the release, traders said the People’s Bank of China guided three-month bill yields higher at an auction for the second time in two weeks.
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Fourth-quarter economic growth was driven by an unprecedented $586 billion stimulus package, subsidies for consumer purchases and a credit-fueled investment boom. The property market has rebounded and a 13-month slump in exports ended last month.

Industrial production grew 18.5 percent in December from a year earlier and retail sales climbed 17.5 percent, the statistics bureau said today.

In 2008 China’s GDP was up 9.6%. The economy there obviously continues to do amazing things. Also there are plenty of signs of crazy spending building huge amounts of housing and office space that lies vacant and questionable infrastructure projects. There is certainly a risk of bubbles bursting in China but the long term strength of the economy seems real. The danger is first political with financial bubbles being the second risk – I think.

Find below some interesting thoughts on financial markets and the efficient market theory. That theory essentially says the market prices are right given the available information. I think markets are somewhat efficient but there are plenty of opportunities to profit from inefficiencies in the market. Still it is not easy to consistently exploit these inefficiencies profitably.

People see high returns in a particular sector, and they cannot tell whether the lower returns they are receiving are due to their fund manager’s proper avoidance of risk, or incompetent management. As they increasingly conclude that incompetence is to blame, funds shift to the new sector and this creates a self-reinforcing process where prices are driven above their fundamental values, i.e. a bubble occurs. It seems like such reallocation of investment funds could, if driven by a strong enough incentive, be enough on its own to drive a bubble even without an external source of liquidity.

Capital market booms and crashes, culminating in the latest sorry and socially costly crisis, have discredited the idea that markets are efficient and that prices reflect fair value.
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Theory has ignored the real world complication that investors delegate virtually all their involvement in financial matters to professional intermediaries – banks, fund managers, brokers – who dominate the pricing process.

Delegation creates an agency problem. Agents have more and better information than the investors who appoint them, and the interests of the two are rarely aligned.
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he new approach offers a more convincing interpretation of the way stock prices react to earnings announcements or other news. It also shows how short-term incentives, such as annual performance fees, cause fund managers to concentrate on high-turnover, trend-following strategies that add to the distortions in markets, which are then profitably exploited by long-horizon investors. At the level of national markets and entire asset classes, it will no longer be acceptable to say that competition delivers the right price or that the market exerts self-discipline.

No Social Security increase. Monthly Social Security checks for most beneficiaries will not increase in 2010. Retirement payouts are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers, which fell between the third quarter of 2008 and the third quarter of 2009. Next year will be the first without a Social Security increase since cost-of-living adjustments went into effect in 1975.
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Higher Medicare Part B premiums for some. Most current Social Security recipients will continue to pay $96.40 each month for Medicare Part B medical insurance, the same amount as in 2009. But for new enrollees, Medicare Part B monthly premiums will be $110.50, a 15 percent increase from 2009 prices. Retirees with incomes greater than $85,000 ($170,000 for couples) also will pay higher premiums, ranging from $154.70 to $353.60 each month, depending on the income reported on their 2008 tax return.
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Among Fidelity-administered 401(k) plans, 27 percent of employers that cut contributions to employee retirement accounts have already resumed the match or plan to reinstate it next year. Another survey, by the Profit Sharing/401(k) Council of America, found that almost half (47 percent) of companies that suspended their employee match are planning to restore it within the first quarter of 2010.

I adjusted my future retirement account 401(k) allocations today. I do not have as favorable an opinion of investing in the stock market today as I did a year ago. I would likely have allocated 20% to a money market fund except my 401(k) actually has two options – 1 paying 0.0% and the other paying -.02%.

They seem to believe they should make a significant profit while providing a horrible return (they are still taking over .5% of assets in fees – even though rates do not cover their fees). Those running funds have very little interest in providing value for 401(k) participants – they are mainly interested in raising fees (though supposedly they are suppose to be run by people with a fiduciary responsibility to the investors). Unfortunately most 401(k)s lock you away from the best options for an investor (such as Vanguard Funds).

As I have said many times I do not like bonds at this time. I don’t think the interest nearly justifies the risk of capital loss (due to inflation or interest rate risk). Inflation protected bonds are a much more acceptable option for someone that is worried about inflation (like I am over the next 10-20 years).

A number of the stock fund (even bond fund) options in my 401(k) have expense ratios above 1%. That is unacceptable. The average fees on the options I chose were .5%.

With my employee match I am adding over 10% of my income to my 401(k), which I think is a good aim for most everyone. Far too many people are unwilling to forgo luxuries to save appropriately for their retirement. This is a sign of financial illiteracy and an unwillingness to accept the responsibilities of modern life.

Nominal health spending in the United States grew 4.4% in 2008, to $2.3 trillion or $7,681 per person. This was the slowest rate of growth since the Centers for Medicare & Medicaid Services started officially tracking expenditures in 1960, yet once again outpaced nominal GDP growth (2.6% in 2008). This brings health care spending to 16.2% of GDP. In 2003 the total health care spending was 15.3% of GDP.

Hospital spending in 2008 grew 4.5% to $718 billion, compared to 5.9% in 2007, the slowest rate of increase since 1998.

Physician and clinical services’ spending increased 5.0% in 2008 to $496 billion, a deceleration from 5.8% in 2007.

Retail prescription drug spending growth also decelerated to 3.2% in 2008 as per capita use of prescription medications declined slightly, mainly due to impacts of the recession, a low number of new product introductions, and safety and efficacy concerns. Drug prices increased 2.5% in 2008.

Spending growth for both nursing home and home health services decelerated in 2008. For nursing homes, spending grew 4.6% in 2008 compared to 5.8% in 2007.

Total health care spending by public programs, such as Medicare and Medicaid, grew 6.5% in 2008, the same rate as in 2007.

Health care spending by private sources of funds grew only 2.6% in 2008 compared to 5.6 percent in 2007.

Private health insurance premiums grew 3.1% in 2008, a deceleration from 4.4% in 2007. Remember many people lost their jobs and did without insurance. Doing so results in reduced spending on health insurance but is far from a good sign.

Home health care spending growth decelerated from 11.8% in 2007 to 9.0% in 2008. Expenditures reached $64.7 billion in 2008. You can understand why investors (and companies) are looking to invest in home health care.

At the aggregate level, the shares of financing for health services and supplies by businesses (23%), households (31%), other private sponsors (3%), and governments (42%) have remained relatively steady over time. Between 2007 and 2008; however, the federal government share increased significantly (from 23 to 25%), while the state and local government share declined (from 18 to 17%).